When looking at Oklahoma’s rig counts, commodity pricing matters.
The number of rigs drilling in Oklahoma’sCana Woodford Basin, which for most of the year had been more than 60, began declining in mid-October.
On Friday, it posted a count of 55 for a second week in a row, coming in at 17 rigs lower than the same time a year ago.
West Texas Intermediate oil prices have also steadily declined, from more than $75.86 a barrel on Oct. 30 to a close of $50.72 on Friday.
Still, industry activity remains elevated within the state.
Oklahoma’s statewide rig count for the week stood at 145, Baker Hughes reported, and that’s 25 percent more than the 122 rigs operating a year ago.
Part of that may have to do with natural gas pricing, which has been running at approximately $3 a thousand cubic feet or better since late August because of a below-normal amount of gas in storage at the end of the summer and ongoing weather.
On Friday, its price at Henry Hub closed at $4.64 per thousand cubic feet.
The trends also may be getting influenced by changing operational conditions.
Russell Evans, an associate economics professor and executive director of the Steven Agee Economic Research and Policy Institute at Oklahoma City University, said he’s been hearing that oil and gas producers are getting more adept at tailoring their activities to current pricing environments.
Evans noted companies allocate their drilling activity with at least three things in mind: holding acreage by production, managing cash flow needs and timing the market to push their production into higher price periods.
“Some people will talk about the ability of a well in the STACK or SCOOP to be profitable at $45 to $50 oil,” Evans said. “This break-even profitability price misses an important point, however.
“With well production concentrated in the early life of a well, the financial return of a project varies considerably if a well is completed and its highest production months occur in a $50 environment” compared to one where the price is more than $70 a barrel, he said.
“If I was a producer in this environment and I had my acreage held and projected sufficient cash flow to cover my immediate obligations, I would absolutely be slowing things down in my plays as much as possible … if I have hope that prices could improve.”
Another industry observer said he is pleased the statewide rig count remains robust, but worries about what is happening in the Cana Woodford.
Chad Warmington, president of the Oklahoma Independent Petroleum Association — Oklahoma Oil and Gas Association, said part of the Cana Woodford consolidation may be attributable to increased efficiencies, adding, “we may be a victim there of our own success, somewhat.”
But Warmington said a reduced rig count could create a negative impact on Oklahoma’s economy, observing that a declining price for oil doesn’t help.
While he noted the Cana Woodford is Oklahoma’s most significant oil play, he said its monster wells that post initial productions of more than 1,500 barrels of oil per day still don’t compare to Permian wells, such as seven Devon completed during a recent quarter on a single pad that each posted initial production rates of more than 4,000 barrels per day.
Those economics, he said, mean companies can get a much better return on their investment in that play than they can in the Cana Woodford, and that’s having an impact on the basin’s rig count.
“That hurts Oklahoma,” he said.
Warmington said he hopes natural gas prices continue to hold, helping the state’s rig count remain stable.
If not, “we could see a pretty significant hit,” he said. “There will still be drilling in Oklahoma, just with less rigs.”
Nationally, the number of rigs searching for oil and natural gas fell by three to 1,076, Baker Hughes reported, up about 15.8 percent compared to 929 that were drilling a year ago. Texas remained the most active drilling state, with 531 operating rigs.
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